High-quality dividend growth stocks are some of the best stocks in the entire stock market. After all, it takes a special kind of business to be able to produce ever-more profit in order to pay out ever-higher dividends.

These stocks are like the golden geese that lay ever-more golden eggs. I have firsthand experience with this. I used the dividend growth investing strategy to go from below broke at age 27 to financially free at 33.

Indeed, I retired in my early 30s in favor of living off of growing dividends, and it’s worked out wonderfully.

By the way, I explain exactly how I achieved financial freedom in just six years in my Early Retirement Blueprint.

In every market, there are deals to be had and opportunities to take advantage of. And that’s what I’m here to talk about.

Today, I want to tell you my top five dividend growth stocks for September 2021. Ready? Let’s dig in.

Dividend Growth Stock Pick #1 for September 2021: Air Products & Chemicals (APD)

Air Products & Chemicals is a global producer and supplier of industrial gases.

With a market cap of $60 billion, this is an industrial gases major. It’s part of a global oligopoly, which limits competition and keeps pricing rational. As an investor, I love oligopolies. It’s fertile ground for higher profits. We can see that here. While revenue is flat over the last decade, that’s due largely to spin-offs and divestitures. Meanwhile, they’ve compounded EPS at an annual rate of 4.67% over the last decade, and that’s even after using lumpy GAAP EPS. If we look at adjusted EPS, which is arguably more accurate in this case, the company is calling for 7% to 9% YOY growth in adjusted EPS for this fiscal year.

What does that translate into? Plenty of growing dividends.

Air Products & Chemicals has increased its dividend for 39 consecutive years, with a 10-year dividend growth rate of 10.3%. That double-digit dividend growth comes on top of the stock’s market-beating yield of 2.2%. And with the payout ratio at 66.4%, based on midpoint adjusted EPS guidance for this fiscal year, the dividend remains easily covered. You can almost set your watch to this one. The dividend should continue to grow at a high-single-digit rate for years to come.

Surprisingly, this Dividend Aristocrat looks downright cheap.

I performed a full analysis and valuation on the stock not long ago, estimating intrinsic value at slightly over $329/share. With the stock currently around $270/share, there appears to be a lot of upside here. Plus, you get that market-beating yield and inflation-beating dividend growth.

Dividend Growth Stock Pick #2 for September 2021: Johnson & Johnson (JNJ)

Johnson & Johnson is a multinational healthcare conglomerate.

Johnson & Johnson isn’t just a pick for September 2021. It’s a pick for pretty much any and every month of any and every year. It’s a classic blue-chip dividend growth stock that you buy and then tuck away in a drawer for the next 30 years. The quality is obscenely high, and the consistency is out of this world. They won’t knock you dead with growth – revenue has compounded at an annual rate of nearly 3% over the last decade, while EPS has a CAGR of more than 5% over that time period. However, it’s the relentless consistency that is so remarkable here.

Want evidence of that consistency?

Well, how about this? They’ve increased their dividend for 59 consecutive years. That makes them a Dividend Aristocrat nearly twice over. That time frame stretches wars, political upheaval, recessions, and even a global pandemic. None of it could stop this machine. The 10-year DGR is 6.5%, which is paired with the yield of 2.4%. And with a payout ratio of only 44.4%, based on this fiscal year’s guidance for adjusted EPS, you already know that the dividend is going to be increased yet again next year.

The stock is up a decent 11% this year, but I think there’s a lot more gas in the tank.

Will this stock explode higher this month, or any other month? Of course not. It’s not that kind of investment. But if you want a long-term dividend growth stock that allows you to sleep soundly at night, Johnson & Johnson, with its AAA credit rating, is the kind of investment that sweet dreams are made of. Most basic valuation metrics indicate that the stock is within a range of fair value here. For instance, the P/CF ratio of 17.8 is only slightly higher than its five-year average of 17.5. This is a steady-eddy dividend growth stock that can be the cornerstone of a diversified portfolio.

Dividend Growth Stock Pick #3 for September 2021: Merck & Co. (MRK)

Merck is a global pharmaceutical company.

I think this is an underappreciated business. They have Keytruda, which is the second best-selling drug in the world, and it’s expected to overtake Humira, the world’s #1 best-selling drug, by the middle of this decade. Merck will have the best-selling product in its entire industry. While revenue is flat over the last decade, EPS has a CAGR of 12.73% when using adjusted EPS for the most recent fiscal year. And Keytruda didn’t come on the scene until 2015. The future for this company is even brighter than its past, which was already quite bright.

Their dividend future is quite bright, too.

They’ve increased the dividend for the last 10 consecutive years. The five-year DGR is 6.3%, which is solid. However, where Merck really shines is with the yield – the stock yields a very appealing 3.4%. That’s almost three times the S&P 500’s yield. It’s also 50 basis points higher than the stock’s own five-year average yield. And the payout ratio is a low 47.1%, based on this year’s guidance for adjusted EPS at the midpoint. Big dividend. Big growth. That’s the story here.

Despite there being so much to like, the stock appears to be significantly undervalued.

Like I said, it’s underappreciated. I very recently highlighted, analyzed, and valued this stock, estimating intrinsic value at about $92/share. The stock is currently below $77/share. We’re talking about potential 20%+ undervaluation here on a high-quality dividend growth stock that offers a market-beating yield near 3.5%. You could do a lot, lot worse than Merck as a long-term investment right now.

Dividend Growth Stock Pick #4 for September 2021: Pinnacle West (PNW)

Pinnacle West is a utility holding company operating in the state of Arizona.

Pinnacle West is one of my favorite utility businesses. While these are typically slow-growth businesses, what makes Pinnacle West unique is their exposure to the Phoenix metro area. Phoenix was the fastest-growing city of the top ten US cities over the last decade. That’s why it’s not surprising to see this company sport some great bottom-line growth. While revenue has compounded at an annual rate of 1.13% over the last decade, EPS has a CAGR of 5.18%. That’s kind of an eye-popping number for a utility.

Also eye-popping are some of the dividend metrics.

This stock offers it all. High yield, great dividend growth, and a moderate payout ratio. The stock yields a market-smashing 4.3%, which is a full 90 basis points higher than the stock’s own five-year average yield. The 10-year dividend growth rate is 5.8%. So you’re getting a 10%+ combination of yield and growth here on a utility, which is quite uncommon. And with a payout ratio of 67.5%, this is a well-protected dividend.

This stock has underperformed, and that’s where I see the opportunity.

It’s down about 2% on the year, which is surprising. But that’s why the yield is high and the valuation low. Speaking of valuation, I put out a video not long ago highlighting this name and showing why it could be worth $89/share. It’s currently below $78/share. I actually bought this stock myself in late August for less than $77/share and alerted my Patrons about that in real-time. If you want a high-yield utility with exposure to the fast-growing metro Phoenix area, Pinnacle West should absolutely be on your radar.

Dividend Growth Stock Pick #5 for September 2021: U.S. Bancorp (USB)

U.S. Bancorp is a large bank holding company.

Want to invest like Warren Buffett? Well, here’s your chance. Buffett, through the common stock portfolio he manages within his conglomerate Berkshire Hathaway, has over $7 billion invested in U.S. Bancorp. With some of the best fundamentals out there among large banks, it’s not hard to see why. Now, the last 10 years isn’t a good look for this bank – or any other bank, for that matter – because the pandemic’s impacts on 2020 numbers has been monumental. But revenue still has a 10-year CAGR of 2.51%. And if we back things up one year and look at the nine-year CAGR for EPS, it’s nearly 7%.

Banks were at the mercy of 2020, but this company stayed true to its dividend commitment.

That’s why I love high-quality dividend growth stocks. I stay loyal to them because they stay loyal to me. They really are the golden geese that lay ever-more golden eggs. And when you’re living off of dividend income, this kind of reliability is exactly what you want. This company has increased its dividend for 10 consecutive years, with a 10-year DGR of 10.9%. That inflation-beating, double-digit dividend growth comes along with the stock’s market-beating yield of 3%. And with a low payout ratio of 39.5%, the dividend is easily protected and positioned to continue growing.

This stock is up about 22% this year, but it still looks undervalued to me.

My recent analysis and valuation video on USB shows how shares could be worth over $61/each. The stock is currently slightly over $56/share. So it looks almost 10% undervalued. And you also get a market-beating yield and double-digit dividend growth. Oh, and you’d be owning shares alongside billionaire investor Warren Buffett. That’s nearly a slam dunk.

— Jason Fieber

P.S. If you’d like access to my entire six-figure dividend growth stock portfolio, as well as stock trades I make with my own money, I’ve made all of that available exclusively through Patreon.

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Source: DividendsAndIncome.com